Kips Bay Medical(Minneapolis), a device company focused on manufacturing its external saphenous vein support technology, eSVS Mesh, for use in coronary artery bypass grafting surgery, has entered into a securities purchase agreement with several investors, including Manny Villafana, the company's chairman/CEO, and Kips Bay Investments, LLC, one of the company's principal stockholders, pursuant to which such investors have agreed to purchase up to $3.25 million in shares of the company's common stock in four equal tranches, subject to certain terms and conditions.
Under the terms of the securities purchase agreement, the first tranche is scheduled to occur as soon as reasonably practicable after the company has received ten angiograms from patients enrolled in its eMESH I clinical feasibility trial who have had an eSVS Mesh implanted using the new surgical implant technique. The second, third and fourth tranches are scheduled to occur on or about the 90th, 180th and 270th day thereafter. Each of the tranches is subject to customary closing conditions and a condition that the clinical data received then to date by the company from the eMESH I clinical feasibility trial demonstrates, to the reasonable satisfaction of each investor, together with any then recent communications with or from the FDA, that it is advisable for the company to continue with the feasibility trial and to continue to pursue marketing approval by the FDA for the eSVS Mesh. The company estimates that the first tranche would occur in June or July 2015.
The per share purchase price will be equal to the lesser of $0.14 per share and the closing sale price of the company's common stock on the trading day immediately prior to the closing of any tranche.
The investors will receive a five-year warrant to purchase one share of the company's common stock for each two shares purchased by an investor at a tranche closing. The warrants will have a per share exercise price equal to 125% of the per share purchase price at the applicable closing.
If the company closes on the entire bridge financing amount of $3.25 million, it anticipates that the net proceeds, together with its existing cash, cash equivalents and short-term investments, will be sufficient to fund its planned operations through the end of 2016. However, it may require or seek significant additional funds earlier than that in order to continue its feasibility trial and plan for and conduct its anticipated larger pivotal trial.
The company has agreed to use the net proceeds from the private placement for working capital and general corporate purposes, including primarily funding the process of seeking regulatory approval to market the eSVS Mesh in the U.S. and abroad, including continuing human clinical trials. The company has agreed not to use any of the net proceeds to hire any sales personnel and to limit its cash operating expenses (other than expenses directly attributable to, and reasonably necessary for the eMESH I clinical feasibility trial and certain other specified expenses) to no more than an average of $208,000 per month, on a three-month rolling average basis, commencing on February 1, 2015, and continuing until completion by the company of an additional financing of at least $3 million.
Under the terms of the securities purchase agreement, Kips Bay Investments has the right to designate two individuals for election to the company's board in addition to its current right to have two observers.
The company did not use any placement agent in connection with the offering.
Kips Bay also reported that it has entered into a new employment agreement with Villafana. The new employment agreement will be effective as of July 1, 2015 and will replace in its entirety Villafana's current agreement which will expire on July 1, 2015.
The new employment agreement contemplates a succession plan for Villafana. If the initial results from the company's eMESH I clinical feasibility trial are positive, the company anticipates that it would seek a new CEO. Villafana's new agreement provides that he will continue in his current position until a new CEO is appointed at which time he would transition to executive chairman. The new agreement will automatically terminate on June 30, 2017.
The eSVS Mesh is designed to be fitted like a sleeve on the outside of saphenous vein grafts, or SVGs, to strengthen SVGs used in coronary artery bypass graft, or CABG, surgery. By strengthening the SVG and preventing the damaging expansion of the vein graft, the company hopes to reduce or prevent the resulting injury which can lead to SVG failure and potentially costly and complicated re-interventions for patients undergoing CABG surgery.